Richard Hu Tsu Tau
Singapore
“Sir, I think it is eminently fair, because the proposal really is for the Government to spend money to give shares to Singapore citizens. Either you agree or you do not agree. Or, if you agree, perhaps you consider the amounts insufficient or too much.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time". The purpose of this Bill is to make provision in accordance with Articles 148(2) and 148C(2) of the Constitution for additional expenditure in excess of the provisions authorised by the Supply Act, 2001.”
“I think the Prime Minister and DPM Lee have already explained it will be based on income levels, with people living in flats as a proxy. So there is no political content in it. It depends on the income level, whether you have served national service or whether you are an elderly person.”
“I really do not understand. I know you are arguing on technicality for which I agree that you may have a point. But, nevertheless, because it is a proposal to share Singapore's surpluses with the population, the distribution is not something which you can argue against.”
“As I said, the estimates will be available around mid-October. I do not think, at this time, I want to give a specific date when the second package will be announced, but it will be done as soon as practicable. IN-PRINCIPLE AGREEMENT WITH MALAYSIA ON OUTSTANDING BILATERAL ISSUES (Assessment) 4.”
“Mr Speaker, Sir, when the $2.2 billion off-Budget package was announced in July this year, we said that the Government would do more to assist Singaporeans if the global economic situation worsened in the coming months.”
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“The amount of relief for this fourth qualifying child will be $750 plus 15% of the working woman's earned income subject to a maximum of $10,000. I have also decided to introduce a Special Tax Rebate. A tax rebate of $20,000, which can be used to offset against either or both the husband's and wife's income tax liabilities, will be granted for the new born third child. An additional rebate equivalent to 15% of the wife's earned income, where the wife is working, will also be granted. However, this additional rebate can be offset only against the wife's income tax liabilities. The excess of both rebates will be allowed to be carried forward for a maximum of four years. In other words, the total rebate granted must be absorbed within a period of five years. OTHER TAX CHANGES Duty on Bets The present duty on bets is 20% on the amount of bets made on any totalisator or pari mutuel promoted by any racing club or association. It was last revised on 1st April 1984. While Government does not encourage gambling, it recognizes it as a practice which cannot be totally eradicated. What Government can do therefore is to ensure that the profits from gambling are not reaped by a few private individuals but channelled for the benefits of the society. I have therefore decided to increase the duty on bets to 25% with effect from 1st April 1987. The additional revenue yield is estimated at $43 million. Duties on Cigarettes and Tobacco Duties on cigarettes and tobacco were last increased in March 1984 to discourage smoking. The increase had helped to retard the growth of smoking among the population. In 1985, the consumption of cigarettes and tobacco dropped by 4.3% compared to 1984, but the rate of decline had slowed down to only 1.6% in 1986.”
“In his Second Reading on the amendment of the CPF Act, the Labour Minister has informed the House that the Minimum Sum Scheme will not be confined to CPF members only. As the scheme is also open to those who have no CPF Accounts, the tax relief will be similarly granted for cash contributions made towards the opening and topping-up of the Minimum Sum Account. This underscores the Government's efforts to encourage the self employed to provide for their old age needs. Tax Incentives to Encourage Procreation Mr Speaker, Sir, the First Deputy Prime Minister has already made an announcement of the Government's population philosophy and what the supporting measures are. He has mentioned that Government will allow, amongst other things, the delivery and hospitalization expenses for the fourth order births to be offset against the parents' earned income when the new accouchement fee structure takes effect from 1 Jan 1988. To encourage more new births and to help reduce the burden of child-bearing and upbringing of the children, the following tax incentives will be granted with effect from Year of Assessment 1988. In the case of Normal Child Relief, the quantum of relief for the third child will be raised to $750 in line with the reliefs granted for the first and second child. This will be applicable to taxpayers who are presently claiming Normal Child Relief in respect of their third child as well as for taxpayers who would become eligible because of new births. In addition, the eligibility for the Enhanced Child Relief will be lowered from 5 GCE '0' level passes to 3 GCE 'O' level passes or equivalent taken in one sitting. The Enhanced Child Relief will also be extended to the new born fourth child.”
“This will include, amongst others, consultancy, management, construction, technical and engineering services. The incentive will be extended to qualifying services undertaken with respect to offshore projects. Under the Scheme, 90% of the qualifying export income would be exempt from tax. Provision will be made for an export base to be set where export income below the base would be subject to full corporate tax. The incentive will be for an initial period of five years but can be extended. The incentive will take effect from Year of Assessment 1988. TAX ON INDIVIDUALS Personal Income Tax In line with the new corporate tax rates, a new schedule of reduced personal tax rates was announced last year, to come into effect from Year of Assessment 1987. No further adjustments are envisaged at this time. CPF Minimum Sum Topping-Up Scheme Members of the House will recall the debate on 27 January 1987 on the Amendment of the CPF Act moved by the Labour Minister to provide for the CPF Minimum Sum Scheme. Some Members have suggested granting tax relief to children who use cash to top up the Minimum Sum Accounts of their parents. I am pleased to announce that Government has decided to grant tax relief for such contributions with effect from 1st April 1987. The amount eligible for tax relief will be the difference between $30,000 and the parents' CPF balance before withdrawal at the age of 55 years. In the case of children topping up the Minimum Sum Accounts of both parents, the amount eligible for tax relief will be the difference between $45,000 and the parents' combined CPF balance before withdrawal at the age of 55 years. The relief will be subjected to a maximum of $6,000 per year.”
“International securities trading, which has gained importance in major financial centres, will expand geographically and 24-hour trading in such international securities will soon be a reality. If Singapore is to continue to be a financial centre of consequence, we will have to tap into this activity and establish ourselves as a centre for the trading of international securities in the Asian time zone. In order to further accelerate the development of our capital market and fund management activities, I have decided that with effect from Year of Assessment 1988, the following income earned by the Asian Currency Units (ACUs) and securities companies approved by the MAS would be taxed at a concessionary rate of 10%: (a) commission and fee income from transacting in non-Singapore dollar securities on behalf of non-residents (presently such income is already exempted for ACUs); and (b) income derived from trading in non-Singapore dollar securities with non-residents, other ACUs and other approved securities firms. Tax Incentives for Promotion of Offshore Services The promotion of offshore activities has been identified as one of our key growth strategies. The slowdown in international merchandise trade as a result of protec- tionistic pressures are likely to continue. Indications are that it will be counterbalanced by increased trade in services. World service trade has, in recent years, been growing twice as fast as merchandise trade and the trend is likely to continue. In order to encourage such offshore activities, I propose to extend the Export Incentive under the Economic Expansion Incentives Act, presently applicable only to manufacturing activities, to cover export of selected services.”
“Withholding Tax on Margin Deposits in Financial Futures and Loco-London Gold Trading Members will recall that in the 1984 Budget, tax concessions were granted to the Singapore International Monetary Exchange (SIMEX) and its members. SIMEX has grown and earned itself a rightful place in Singapore's financial scene. Within two and a half years of its formation, SIMEX has established itself as a formidable financial futures exchange in the Asia-Pacific time zone. The daily average volume recorded in the first two months of this year was well over 5,000 lots, an increase of at least 200% over the daily average volume of about 1,600 lots in 1984. As at end February, SIMEX has a total of 30 Clearing members, 40 Non-Clearing members and 228 Individual members. Currently, SIMEX list 7 futures contracts. Plans are underway to list additional contracts including options based on the existing contracts. To further encourage the growth of gold and financial futures trading in Singapore and increase SIMEX members' international competitiveness, I am pleased to announce that with effect from Year of Assessment 1988, interest paid by SIMEX members on margin deposits for transactions in gold and financial futures shall be exempt from withholding tax. Also, since Singapore is an important physical gold trading centre and has an active gold and deferred gold market, the latter being commonly known as Loco-London gold, I have decided to exempt interest paid by SIMEX members to non-residents in respect of transactions in Loco-London gold from withholding tax. This will make Singapore a more attractive place to carry out such transactions. Extension of 10% ACU Tax to Securities Trading The global trend in the financial market-place towards securitisation is likely to continue unabated.”
“Also, whilst tax rates undoubtedly matter, competitiveness should, in general, be achieved by improving the pre-tax rate of return. That is to say, by reducing operating costs. The Government will take the necessary measures to ensure that such costs are kept low. Consumption taxes are not something new. A number of such taxes already exist. They include entertainment duties, duties on liquor and tobacco, tax on public utilities and telephone bills, etc. As a start, Government will consider extending the list of such consumption taxes on a selective basis to meet any future shortfall in revenue. A Consumption Tax Division will be set up under the Inland Revenue Department to look into the collection of such taxes. The Division will assist my Ministry in deciding on the items to be included in future under this selective basis. Whilst the Government has decided to adopt this item by item approach in preference to a comprehensive consumption tax at this point in time, the public must be prepared for such an eventuality when we are faced with a permanent budget deficit. In such a case a comprehensive consumption tax would be inevitable. In the final analysis, the need for a comprehensive consumption tax must be seen in the overall context of Singapore's economic imperatives. TAXATION I now turn to tax matters. TAX ON COMPANIES Corporate Income Tax As I have mentioned earlier on in my speech, during the last year or so, Government has given a number of new concessions to ensure that we remain competitive. Time is needed for these measures to work. Therefore, I do not propose to introduce major changes to the corporate income tax, except to improve on the incentive package aimed at promoting Singapore as a financial and services centre.”
“The decision to trim manpower in the public sector by 10% by 1990 is one move in this direction. Equally important, we must ensure that all Government programmes be self-financing as far as possible, with minimal subsidies. This will not only keep Government expenditure low but it will also encourage more efficient use of resources and reduce waste. Furthermore, we will then avoid the problem faced in many countries, of insatiable demand for state produced goods and services that are heavily subsidized. Of course, Government will make sure that while those who can afford will pay for the services, the less fortunate and the destitute will be looked after. Selective Goods and Services Tax Members of the House will recall that last year, I said that the Government was seriously considering the introduction of a broad based consumption tax. I also indicated then that the machinery needed for the collection of consumption taxes would have to be put in place. An early start is necessary to evaluate alternatives and to install the administrative machinery. A broad based consumption tax is a good compensatory source of revenue. However, I would like to reiterate that a broad based consumption tax will only be introduced if the revenue shortfall is substantial and a permanent deficit inevitable. The corporate tax rate at 33 per cent which comes into effect this year, is very competitive vis-a-vis the majority of the NICs and the OECD countries, and I do not envisage that we would need to reduce it further at the present time. This is because competitive tax cutting beyond a certain level, if practised by all countries, would ultimately be ineffective in achieving its aim.”
“These tax cuts have helped our companies regain their international competitiveness and have stimulated the economy. They are also consistent with our long term objective to move towards a lower corporate and income tax regime, in which enterprise and the factors of production are taxed as lightly as possible. But they have also reduced the Government revenue base, which will be further eroded when the corporate tax cuts come into effect this year. I shall now touch on the Government revenue position. With existing tax rates, the FY 87 tax revenue is estimated at $4.56 billion, $293 million less than in FY 86 and much lower than the $7.56 billion collected in FY 84. Consolidated Revenue for FY 87, however, is estimated at $9.06 billion, an increase of $1.27 billion over FY 86 and slightly lower than the figure of $9.81 billion for FY 84. However, the increase is almost entirely due to a transfer of $1.50 billion from the statutory boards to the Consolidated Fund. I will elaborate on this later. Excluding this amount, there will be a drop in the Consolidated Revenue receipts. Taking into account both expenditure and revenue estimates for FY 87, Government's overall financial position is expected to be in deficit by $3.75 billion. This deficit will be financed through domestic borrowings or a drawdown on reserves. The revenue estimates show that tax revenue has declined sharply since 1985, and there is no room for further direct tax cuts without it being made up from other sources. The policy of this Government has always been to ensure that revenue is adequate to finance expenditure. This is important as structural deficits cannot be sustained in the long term. Greater prudency is therefore necessary in all areas of Government expenditure.”
“The larger part of the increase is due to the provision of $1.26 billion for the purchase of Government land no longer required by the Urban Redevelopment Authority and the Jurong Town Corporation. A provision of $3.39 billion is budgeted for capital grants to Statutory Boards and other institutions. Almost a third of this is for the MRT system. A sum of $228 million is earmarked for the expansion of facilities at vocational, industrial training and tertiary educational institutions. Capital assistance by the EDB to industries and the services sector will be stepped up substantially. Such assistance is expected to double to about $200 million. The provision for capital grants includes an allocation of $1.67 billion to finance the losses incurred by HDB on sales of flats and other capital-related expenditure. Of the total provision of $5.71 billion for loans, $4.6 billion or 81% is for the HDB and the balance is to meet the requirements of the EDB, Temasek Holdings and other public enterprises. Some $1.9 billion of the provision for loans to the HDB is for the purchase of state land required for public housing and the balance to finance construction activities. The EDB's industrial loan scheme is allocated a sum of $600 million, a very substantial rise over last year. SECTION III - REVENUE AND TAX CHANGES In the last Budget, I said that we would monitor how Government charges would impact on our international competitiveness. I also assured Members that we would not burden the private sector with unnecessary statutory costs. To this end, we have cut taxes on public utilities and personal income taxes. The property tax rebate was deepened in July last year and various new tax concessions were introduced.”
“The larger part of the increase is due to provision being made for the Ministry of Health to contract out to the private sector the supply of pharmaceutical materials of hospitals consequent upon the decision to wind down an old Government phar- maceutical manufacturing facility and to farm out catering services at the Singapore General Hospital. Because of stringent control of operating costs, Other Operating Expenditure of the other Ministries and Organs of State is expected to increase by less than $22 million or 5%. An increase of $153.6 million or 19% is expected in expenditure on Grants, Subsidies and Other Transfers. Of this, $50 million is for the creation of revolving funds for the provision of loans to NUS and NTI students to assist them in meeting the planned increases in student fees, details of which have been announced by Dr Tony Tan, the Minister for Education. Another $42 million is to finance the operating deficits of the tertiary and technical education institutions, aided schools and other Government-funded Statutory Boards. The HDB will be provided with a subsidy of $62 million to meet its operating deficit. This would be in addition to loan funds and capital subsidies totalling $6.26 billion provided under the development budget. Development expenditure for FY87, inclusive of capital grants and net lending to Statutory Boards and public enterprises, is estimated to be $9.70 billion, a drop of $237 million or 2% compared with the revised FY86 expenditure. The drop is mainly due to a substantial decrease in loans to HDB for its construction programme and for purchases of land required for public housing. Direct development expenditure by Ministries and Organs of State is projected to be $1.55 billion or 75% higher than the revised FY86 estimate.”
“The reductions are possible following deletions of long-standing unfilled vacancies, implementation of mechanisation, automation and computerization schemes, organisational reviews and changes in work procedures. The reductions are also in line with the objective, which I announced in my Budget Statement last year, of reducing the overall public sector manpower complement by 10% by the end of this decade. The gradual reduction of staffing levels and restraints on operating costs are part of an overall programme to improve productivity and enhance efficiency in the Civil Service. Members will recall that in my Budget Statement last year I announced the introduction of a programme of manpower scrutinies in the public sector. The scope of these scrutinies will in the coming year be widened to cover not only manpower requirements but also the running costs of activities. The scrutinies will involve a critical "zero-base" examination by Ministries and Statutory Boards of their major activities. Scrutinies will assess whether particular activities are necessary and, if so, whether they could be done at lower costs and with less manpower. Alternative means of achieving objectives including "privatization" of selected services and the contracting out of functions will be examined in the course of the scrutinies. The ultimate objective will be to ensure that public services are provided at least cost to the tax payer. Other Operating Expenditure of Ministries and Organs of State is projected to increase by $52 million or 10%.”
“Excluding debt servicing, the expenditure to GDP ratio will, in fact, drop slightly - from 40% to 39%. Recurrent expenditure in FY87 is projected to reach $8.97 billion, about $2.58 billion or 41% higher than the revised FY86 level. Debt servicing costs account for $2.19 billion or nearly 85% of the increase. Excluding debt servicing, the estimated increase in recurrent expenditure would be about 7.7%, much lower than the average annual increase of 15% over the FY80-85 period. The larger part of the increase in debt servicing costs is due to a "once-off" payment of $1.45 billion in backdated interest on CPF advance deposits which are expected to be converted to domestic registered stocks in 1987. Pension payments are expected to rise by $11 million or 6% because of higher ex-gratia payments to officers leaving the Service. Operating expenditure of Ministries and Organs of State is projected to go up by $389 million or 7.7%. Expenditure by the Ministry of Defence is expected to be $94 million higher than in FY86. Expenditure by the other Ministries and Organs of State will increase by $295 million or 10%. A provision of $3.23 billion is set aside for the recurrent expenditure of the non-Defence Ministries and Organs of State. Of this, $1.68 billion or 52% is for Expenditure on Manpower, $0.59 billion or 18% for Other Operating Expenditure and $0.96 billion or 30% for Grants, Subsidies and Other Transfers. Expenditure on Manpower is projected to increase by $89 million or 5.6% - much lower than the average annual increase of 14% over the period FY80-85. The moderate increase is due to the wage restraint policy and a reduction of nearly 1,160 posts from the authorized staff establishment.”
“Longer term, we face the even more difficult problem of an ageing population, made worse by a rapidly declining fertility rate, particularly amongst the better educated. These trends, unless addressed now, and reversed, will inexorably lead to a Singapore lacking in the brainpower and vigour needed to compete internationally. Amongst other measures, I will be introducing, later in my speech, a package of tax measures designed to encourage procreation. SECTION II - THE FY87 BUDGET The slowdown in our GDP growth since 1984 and the tax cuts introduced in 1985 and 1986 have resulted in a substantial decline in tax revenue. The principal considerations in preparing the FY87 budget have therefore been to: - ensure that recurrent expenditures are restrained so as to allow the recurrent budget to be balanced or to show a small surplus which could be used to fund development programmes which support economic recovery and longer-term economic growth - minimize the overall budget deficit so that Government reserves are not run down significantly. Recurrent expenditure increases for FY87 have been kept to the minimum necessary to maintain current levels of public services. Allocations for infrastructural development and capital assistance to the industrial and services sectors have, however, been stepped up. Total Government spending in FY87 is estimated to be $18.67 billion, about $2.35 billion or 14% higher than the revised FY86 expenditure. Development outlays account for slightly more than half of total expenditure. As a proportion of GDP, Government expenditure is expected to rise from 43% to about 47%. This is largely due to a "once-off" increase in domestic debt servicing costs.”
“I can, however, give the assurance that tax concessions will remain in place for as long as necessary to maintain our international competitiveness. I should caution, also, that further significant cuts in direct taxes cannot be expected without the compensatory introduction of some form of consumption taxation, as direct taxes are the main source of Government revenue, and structural deficits cannot be sustained in the long term. Naturally, we will look first to greater prudence in all areas of Government expenditure. In addition, we must ensure that Government programmes should be self-financing as far as possible, with minimal subsidies. In this connection, the level of subsidies appropriate for tertiary education has been reviewed, as announced by the Minister for Education this morning. Concluding Remarks 1986 has been a watershed year in Singapore's economic history. For many Singaporeans, the recession was an awakening to economic realities. The lessons learnt from the recession were painful, but they were timely. We have to accept that the era of double-digit growth is over. The economy is in a more mature phase of development. Henceforth, growth will be more difficult to achieve. It will only be achieved if we successfully restructure our economy. To do this, we must capitalise on our only asset - our people. Education and training must therefore continue to be the focus of our development strategy. They are long-term investments that will yield social and economic returns. The Government will continue to expand and improve our various educational and training institutions. The successful infusion of skilled and trained manpower into the economy will provide the impetus for us to grow and progress into the 1990s and beyond.”
“I will be announcing later a new incentive to promote offshore services, and encourage our companies to take advantage of overseas business opportunities. The Monetary Authority of Singapore (MAS) will continue to actively promote development of banking and financial services. The Stock Exchange has been reorganised and revitalised. Development of the domestic capital markets is being augmented by the opening of a second exchange and by the launching of a new issue of marketable Government securities later this year. Growth in the offshore banking sector and in fee based financial services has been encouraging, following the package of financial incentives introduced last year. With the opening up of Tokyo as a financial centre and the rapid internationalisation of banking, competition in financial services is expected to intensify rapidly. Government will ensure that Singapore remains competitive as a regional financial centre by continuing to upgrade its infrastructural facilities and to make available a sufficiency of skilled manpower. We will also ensure that the fiscal environment remains hospitable and I will have more to say on this subject later in my speech. FISCAL POLICY The tax cuts introduced in 1985 and 1986, at a cost of approximately $2.2 billion in lost revenue, together with other cost reduction measures and the wage restraint policy, have clearly worked to turn the economy around. However, it is not possible nor necessary to maintain some of the tax cuts indefinitely. The suspension of the tax on PUB bills, for example, and the concessions on property tax, will have to be reviewed when the economy has finally recovered.”
“To date, six such companies have been awarded the incentive. These companies are expected collectively to generate $4 billion worth of business over the next three years. (D) Promotion of Services Our investment promotion efforts no longer focus on manufacturing alone. This is important as our present niche as a manufacturing base is constantly being challenged by the other NICs. They have more resources and cheaper labour than we do. While we will not abandon manufacturing, we must move aggressively into services, particularly knowledge-based and skill-intensive services where we have a comparative edge and advantage. This is the way to develop into an international total business centre. The EDB has set up a Services Promotion Division to lead and coordinate efforts to promote services. The Government is extending tax incentives which were previously confined to manufacturing to a broader range of non-manufacturing activities. The Operational Headquarters (OHQs) incentive was introduced last year to attract international companies to Singapore, to manage and provide a full range of services to subsidiaries in the region. OHQs are desirable as they bring with them substantial and pervasive direct and indirect benefits to the economy. EDB is working out together with international accounting companies and bankers the types of OHQs we want to promote in Singapore. Four companies have already been awarded the OHQ incentive, and many more have expressed interest. Last year, the pioneer incentive was extended from manufacturing to service industries. We hope that this will attract more knowledge- and skill-intensive services companies to Singapore.”
“We will continue to use all available avenues, such as international dialogues and forums, to argue for the maintenance of the system of free trade. But we must be prepared for more protectionist measures in the developed countries, the result of rising budget and trade deficits and rising unemployment. To safeguard our GSP entitlement, we will also have to resist premature attempts to graduate us to developed country status, which do not take into account limitations and the vulnerabilities of our small open economy. Apart from resisting attempts to deny us market access, TDB will step up its efforts to promote Singapore's exports, particularly of new products and to new markets such as Latin America, India and China. The Market Development Assistance Scheme has helped local companies to export their products and services. So far $4 million has already been granted to more than 400 companies. Major Original Equipment Manufacturers have been encouraged to set up International Purchasing Offices (IPOs) here. In the electronic sector alone, there were 22 IPOs in 1986 compared to only 12 in 1985. TDB will also help local companies improve their product designs and packaging capability, to make them more competitive in international markets. In line with the Economic Committee's recommendations, TDB will upgrade and promote our entrepot trade and develop Singapore into a Hub City offering sophisticated services to support trading activities. Our warehousing and distribution facilities are being improved. More feeder lines will be encouraged to use Singapore as the pivotal cargo port of this region. In addition, the Pioneer Service Incentive will be used to encourage countertrading companies to set up their regional offices here.”
“This Committee, under the chairmanship of Mr Michael Fam, has completed its study and has presented its full report to Government. The report is being studied by the Ministry of Finance. (B) Investment Promotion While we do more to help local businesses upgrade and modernize, we must continue to attract more foreign investments to Singapore. We need foreign investments not only to generate and sustain economic growth but also to foster our economic restructuring and upgrading. The EDB's intensive marketing efforts and cost-cutting measures have paid off. Investment commitments as I mentioned earlier, reached $1.4 billion in 1986, 27% more than in 1985. But caution is necessary. Foreign investments will no longer come easily. The competition for the investor dollar is getting more intense and we are competing not only against developing countries but even against many developed countries. MNCs seeking investment locations are evaluating us against countries such as Britain, Spain and even some states in the US. EDB's aggressive marketing and promotion efforts alone will not succeed in attracting foreign investments to Singapore. Our fundamentals must also be right. We must continue to have a stable and rational Government which has the support of the people; we must preserve good industrial relations climate; we must improve our efficient, comprehensive infrastructure. Finally, we need a highly conducive business environment which can offer a higher rate of return than the OECD countries. Otherwise, there is no incentive for the investor to come to Singapore. Therefore, every effort must be made to keep costs low and competitive. (C) Trade Promotion TDB will continue its efforts to safeguard and expand our access to international markets.”
“Government remains committed to the view that the private sector should be the engine for economic development. To this end, Government has been gradually reducing its role in business. Guidelines for Government companies were first issued by my predecessor, Dr Tony Tan, in his 1985 Budget Speech, and I can do no better than repeat his statement: (a) Government will invest in new priority industries only where private entrepreneurs do not have the will or the money to undertake projects on their own or where it is essential for Government to provide the entrepreneurship; (b) Government will divest its shares in companies where it does not have a majority stake and where it is not essential for Government to have effective control; (c) unlisted Government companies will, wherever possible, be listed on the Stock Exchange of Singapore; and (d) for critical companies which are considered to be vital to the national interest, Government will maintain a controlling interest but where possible will invite participation from the public through listing on the Stock Exchange. Since that time, Government has divested its interests in several companies and reduced its holdings in a number of others. In January 1986, a Public Sector Divestment Committee, comprising private sector representatives and Government officials, was set up to review and propose a programme for the privatisation of Government-owned enterprises. The Committee's role was to identify Government-owned enterprises suitable for privatisation and to recommend a privatisation programme which will provide the widest possible public participation and also ensure continuity of quality management.”
“Investors can rest assured that the Government will not let our costs rise out of line again. LONG-TERM TRANSFORMATION OF THE ECONOMY The principal priority of the Government in the coming financial year will be to restore the economy to full health. At the same time, we must not lose sight of longer term issues, in particular, our place in the world economy. We are already implementing the longer-term recommendations of the Economic Committee to transform the economy. The Government, and particularly agencies such as EDB, TDB and MAS are pressing ahead along the New Directions. We plan to develop the economy in four main areas, viz. the upgrading of local businesses, and the promotion of investments, trade and services. (A) Upgrading of Local Businesses Local businesses occupy an important role in our economy. We must build a solid base of thriving and resilient local businesses. In this connection, the Small Enterprise Bureau (SEB) has, since its inception, worked closely with SISIR, NPB and TDB to implement various programmes to help local businesses. These programmes improve access to capital by small firms, and encourage them to adopt modern management methods, to improve efficiency, to upgrade their technology, and to build up their product design capability. The response has been good, and more such programmes will be introduced. But the restructuring process will not be easy. Local businesses can be assured that the Government will give them every possible help to upgrade and modernise their operations to cope with the changing business environment. But Government help will not be enough. Our businessmen must have the will to adapt and adjust to changes, so that they can play their rightful role in the modern economy of Singapore.”
“We must not miss this rare opportunity to reform our wage system, while memories of the recession are still fresh and the euphoria of recovery has not set in. Government agencies such as the Ministry of Labour and the National Productivity Board will offer every assistance to help companies introduce flexible wage systems. I am pleased to note that so far, 64 companies including both MNCs and local firms, and three industry groups have taken active steps to introduce a flexible wage system. I encourage others which have not done so to act quickly. (B) Long-Term CPF Contribution Rate To tackle the problem of high wage costs directly, the Economic Committee recommended that the Government immediately reduce employer CPF contribution rates to 10%, for two years in the first instance. This was done. The Committee also recommended that "the Government should review the CPF scheme from a longer term perspective, to decide on the appropriate long-term rate and structure of contributions that would meet the basic needs of the CPF scheme". This is being done. Two different objectives have to be satisfied: we want to save as much as we can, in order to provide for the basic needs of retirement income, home ownership and Medisave; at the same time, the contribution rate must be one the economy can afford. Although the long term target CPF rate cannot yet be determined, it is already clear that any increase in the CPF rate after these two years will have to be gradual. It will have to take into account the state of the economy and the conditions of the labour market. Any CPF rate increase must be implemented as part of an overall affordable increase in labour costs, so that our competitiveness will not again be affected.”
“The employer's CPF contribution rate was cut by 15 percentage points, resulting in a 12% saving in wage costs. Statutory charges were also reduced. In addition, unions and management reacted responsibly to the Government's call for severe wage restraint. CPF records show that wage restraint has worked. Under this policy, nominal wages increased on average by only 0.7% in 1986 (December 86 compared to December 85), compared to 5.4% in 1985 and 12.3% per annum between 1980-84. However, so far we have only managed to restore our competitive position to the 1982 level. We need to go one step further - to narrow our cost differentials with the NICs back to at least the 1981 level when our competitive position was relatively strong. This requires another year of low wage increases and high productivity growth. The wage restraint policy must therefore continue this year. MAINTAINING INTERNATIONAL COMPETITIVENESS (A) Wage Reform We must also adopt a long-term perspective in addressing the issue of international competitiveness. It is not enough just to restore our cost-competitiveness. We must also ensure that we maintain our competitive position, once it is restored. This will only happen if we reform our wage system. The NWC Subcommittee on Wage Reform has published its Report. It explains clearly the need for such reform. There must be flexibility in our wage system, to allow us to cope with the uncertainties of the economy, by adjusting through wages rather than through unemployment. This is in the interests of both companies and workers. The report provides guidelines on introducing a flexible wage system to the private sector. The public sector too formed a subcommittee to look into wage reform in the Civil Service.”
“As a result, recovery of the fiancial and business services sector has been modest, except for the offshore markets, which have done well. We therefore cannot relax our efforts to restore the economy to steady growth. Our focus should be on the long term. We must aim for the targetted long-term growth rate of 4-6% per annum. Whether we succeed depends largely on the external environment, given the openness of our economy and our dependence on overseas mark everything to ensure that whatever happens, our chances of a sustained recovery are maximized. RESTORING INTERNATIONAL COMPETITIVENESS - WAGE RESTRAINT The importance of restoring our international competitiveness cannot be over-emphasized. We are a price-taker in international markets. We can only sell our goods and services if our prices are right. The loss of our international competitiveness was a key reason for our recession. From 1980 to 1984, wage increases in Singapore far outstripped productivity growth, while in the NICs, wage increases were either lower or at least matched by productivity increases. Our competitive position against the other NICs weakened by as much as 50%. Details are shown in the charts (Cols. 111 - 114) which are being distributed to Members. In this period, external demand for our goods and services grew by only 5% per annum, whereas that of the other NICs expanded by 11% per annum. In short, the other NICs expanded their share of the international market at our expense. charts - UNIT LABOUR COST OF SELECTED COUNTRIES, RELATIVE UNIT LABOUR COST AGAINST THE THREE NICs, 1980-1986 (Cols. 111 - 114) Thus, last year our priority was to restore our international competitiveness through cost reduction.”
“Overall, 11,000 jobs (net) were created in 1986. Unemployment, which reached a high of 6.5% in June 1986, fell to 4.6% in December 1986; (iii) Our non-oil domestic exports grew by 20% in 1986, compared to the 4% decline in 1985; and (iv) Investment commitments reached $1.4 billion, a 27% growth over 1985, although still less than the $1.8 billion registered in 1984. However, these statistics must be interpreted with circumspection. They merely indicate that taken as a whole, the economy is recovering from the recession. But the recovery is not across the board. Not all the sectors of the economy have recovered or are doing well. Only manufacturing and transport and communications, which make up about half the economy, are performing satisfactorily. We must therefore not throw caution to the wind. The recovery of our manufacturing sector was due mainly to the cost-cutting measures. These measures reduced total production cost by 10-15%, allowing our exporters to pass on some of the gains as price reduction in the international market. This, in turn, stimulated external demand for our goods. In the transport and communications sector, cost-cutting measures and particularly higher productivity have also generated robust growth, demonstrating how important it is for a price-taker like Singapore to be internationally competitive. I will elaborate on this point later. The other half of the economy, which includes construction, trade and commerce, and financial and business services, has not done as well. The construction industry remains badly depressed due to the oversupply of properties. Growth in the trade and commerce sector remains weak, largely because of the slowdown in the regional economies caused by low commodity prices.”
“Mr Speaker, Sir, I beg to move, That Parliament approves the financial policy of the Government for the financial year 1st April, 1987 to 31st March, 1988. SECTION I - REVIEW OF THE ECONOMY Last year, when I delivered the Budget speech, the economy was in the throes of a recession, the worst in 20 years. No sector of the economy was spared. Overall, our GDP shrank by 1.8% in 1985, and about 00,000 jobs were lost. The recession continued into the first quarter of 1986. Companies were still folding and retrenchments continued, apparently unabated, with no prospect of recovery. The Government acted swiftly. Various cost-cutting and fiscal measures recommended by the Economic Committee were implemented. They represented important policy changes that decisively improved our competitiveness. The lowering of employer's CPF contribution rate to 10%, the substantial reductions statutory charges and other costs, and the 50% cut in property taxes all helped to reduce operating costs and improve company profitability. Other measures designed to stimulate the economy and restore business confidence included rebates on personal income taxes, increased Government spending on infrastructural projects and a lowering of the corporate tax rate to 33% with effect from Year of Assessment 1987. PERFORMANCE IN 1986 These measures have paid off. How successful they have been is evident from the performance of the economy in 1986. The details can be found in the Annual Economic Survey which has already been released. I will therefore only highlight the salient points: (i) The economy grew by 1.9% in 1986. This was an improvement over 1985, and was also better than our earlier projection of zero growth; (ii) The employment situation too has brightened.”
“Resolved, "That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 52), resolves that the schedule to that Act be varied by deleting the figures "$440,000", "$38,400", "$1,806,000", "$342,700" and "$359,300" in the second column and substituting the figures "$418,500", "$40,000", "$1,441,510", "$331,100" and "$178,100", respectively." ANNUAL BUDGET STATEMENT 3.44 pm”
“Mr Speaker, Sir, I beg to move the Motion standing in my name under item No. 6* in the Order Paper. *The Motion reads as follows: That this Parliament, pursuant to section 7 of the Civil List and Pension Act (Chapter 52), resolves that the schedule to that Act be varied by deleting the figures "$440,000", "$38,400", "$1,806,000", "$342,700" and "$359,300" in the second column and substituting the figures "$418,500", "$40,000", "$1,441,510", "$331,100" and "$178,100", respectively. Sir, it is proposed to reduce the provisions for the Privy Purse and Salaries of personal staff to $418,500 and $1,441,510 respectively. The reductions are consequential to the implementation of the 1987 wage restraint measures. The allocation for Entertainment is increased by $1,600 because of higher anticipated expenditure on receptions. A sum of $331,100 is required to meet Expenses of the Istana household. This is a slight decrease of $11,600 and is due to lower expenditure on public utilities and maintenance of buildings. The allocation under Special Services is also reduced from $359,300 to $178,100. This is because the budgeted FY 86 provision for the replacement of the Presidential car in 1986 has been revoted to the new financial year but at a reduced amount. It is therefore necessary to vary the provisions in the Schedule to the Civil List as follows: for "The Privy Purse" from $440,000 to $418,500; for "Entertainment allowance" from $38,400 to $40,000; for "Salaries of personal staff" from $1,806,000 to $1,441,510; for "Expenses of household" from $342,700 to $331,100; and for "Special services" from $359,300 to $178,100. Question put, and agreed to.”
“I need to add, Sir, that to succeed in any such claim for dependency a person must not only fall within the categories of dependency which we have now enlarged, but must also be able to prove to the court that he was actually financially dependent on the deceased person. Sir, as I said, this Bill is rather technical but it is necessary and it is, in fact, a response to a suggestion for reform made by the Judiciary itself. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Prof. Jayakumar]. Bill considered in Committee; reported without amendment; read a Third time and passed. ENVIRONMENTAL PUBLIC HEALTH BILL Order for Second Reading read. 3.37 pm”
“In determining damages payable to a person on account of a fatal accident, our courts usually award a sum of about $6,500 for "loss of expectation of life". This award is usually regarded as a "solatium", a consolation, to the close relatives of the deceased. But in law it is awarded to the estate of the deceased. Thus it can also be claimed if the deceased does not have any close relatives. To rectify this anomaly, clause 3 of the Bill will abolish the claims for damages for loss of expectation of life. In its place the new section 12A of the Bill creates a right to claim a fixed sum of $10,000 for "bereavement" which can be claimed only for the benefit of certain very close relatives. If the deceased does not leave behind any such close relatives, no such award will be made to his estate. The third amendment, as mentioned, Sir, the dependants of the deceased person can always claim for loss of dependency. However, at present the law recognizes only a few categories of persons as dependants for this purpose. Only the spouse, parent, grandparent, child, stepchild and grandchild of the deceased are eligible to claim for loss of dependency. Under our existing law, other relatives who are actually dependent on the deceased but who do not fall within these narrow categories cannot claim for loss of dependency, eg. brothers and sisters, nephews and nieces. In order to prevent undue hardship or injustice, the Bill seeks to extend the categories of dependants to also include - (a) brother, sister, uncle, aunt, nephew, niece and first cousin of the deceased. (b) child treated by the deceased and his wife as a child of their family; (c) great-grandchild or great-grandparent of the deceased.”
“That case was followed by our Court of Appeal in 1982 because it was based on the interpretation of a United Kingdom statutory provision which is similar in all respects to section 8(2) of our Civil Law Act. Certain undesirable consequences may arise from this changed state of the law: First, double compensation may be payable in cases where the deceased's dependants are not also beneficiaries of the deceased's estate. The wrongdoer may have to pay damages to both the deceased's estate for "lost years" and to his dependants for their "loss of dependency", a result which surely cannot be acceptable. Secondly, where the deceased has no dependants, other persons, eg, distant relatives, may receive a "windfall" and be unjustly enriched by such an award. Thirdly, the estate claim for the "lost years" is often higher than the "loss of dependency" claim. In some cases, dependants may obtain damages which are more than their actual loss of dependency. Such cases include cases where the dependants are already elderly and are likely to have died before the deceased person had he not met with a premature death in an accident. Sir, the need to reform this unsatisfactory state of the law was recognized by the House of Lords in the case of Gammell itself. Nearly all the judges in Gammell's case called for legislative intervention. So too in our own Court of Appeal, quote Mr Justice Lai who called for reform, "It is in the province of our legislature to reform the law." Therefore, Sir, clause 2 of the Bill will reverse the law as stated in Gammell's case by abolishing the right of a deceased person's estate to recover damages for the "lost years". Let me now deal with the other amendments in the Bill.”
“Mr Speaker, Sir, I beg to move that Parliament doth agree with the Committee on the said resolutions. Question put, and agreed to. Resolutions accordingly agreed to. CIVIL LAW (AMENDMENT) BILL Order for Second Reading read. 3.26 pm The Second Minister for Law (Prof. S. Jayakumar): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." This Bill will make certain reforms to the law relating to damages payable in cases of fatal accidents. This is necessary because of a change in the law brought about by a judicial decision in the United Kingdom House of Lords in 1981. Similar amendments have been made to the laws of other countries such as the United Kingdom and Hong Kong. Before 1981, when a person died in a fatal accident caused by the negligent act of another person, the wrongdoer was liable to compensate - First, the deceased's estate for the deceased's loss of expectation of life; Secondly, to compensate the dependants of the deceased for the loss sustained by them on account of his death, what is known as "loss of dependency" claim; and Thirdly, any additional disbursements incurred by any person or the deceased's estate on account of the accident. The income which the deceased would have earned had he not died was not a part of the damages payable by the wrongdoer. In other words, damages for what is known in the legal jargon as the "lost years" could not be claimed by the deceased's estate. However, the law on this was changed in 1981 when the United Kingdom House of Lords decided the case known as Gammel v. Wilson. The House of Lords in that case decided that damages for the "lost years" could be claimed by the estate of a person killed in a fatal accident.”
“Mr Speaker, Sir, I beg to report that the Committee of Supply have come to certain resolutions. Resolutions reported - "The sum of $16,750,000 shall be supplied to the Government under the heads of expenditure for the public services shown in the First Supplementary Main Estimates of Expenditure for the financial year 1st April, 1986 to 31st March, 1987 contained in Paper Cmd. 3 of 1987." "The sum of $60,783,000 shall be supplied to the Government under the heads of expenditure for the public services shown in the First Supplementary Development Estimates of Expenditure for the financial year 1st April, 1986 to 31st March, 1987 contained in Paper Cmd. 4 of 1987."”
“Sir, I thank the Member for Punggol for his kind words because he has been one of the leading proponents for suggesting this increase, and I can understand his concern for the pensioners. In response to the question he has raised, the increase in the Singapore Allowance benefited 7,850 pensioners, or 91% of the 8,634 pensioners who are still resident in Singapore. So the majority have, in fact, benefited from this. As to his question of invitations for pensioners to attend public functions, this indeed is something which we have already asked the various Ministries and other bodies to do. Invitations are, in fact, being considered and letters have gone out in the form of circulars requesting such invitations in July this year. As to his final question on the possibility of reviewing medical benefits, I regret it is not possible at this time to do so because medical benefits are not reviewed independently of those for serving officers. Pensioners generally enjoy the same medical benefits as they had just prior to retirement.”
“The reinsurance and the insurance of such buyer credits is a common worldwide procedure adopted by most exporting countries who wanted to compete in this area of capital intensive exports. The arrangement was terminated in 1982 after two years because the Government found that the liability risk was excessive and it felt that the oil rig industry had matured sufficiently by that time to stand on its own.”
“Sir, the two loans referred to in Paper Cmd. 3 of 1987 were buyer credits extended by a syndicate of banks to overseas buyers to purchase goods and services from Singapore exporters. The banks paid to Singapore exporters immediately after the delivery of the goods and services and the overseas buyers will repay the banks over several years. To assure the banks of a repayment of the buyer credits, the Singapore exporters paid ECICS (Export Credit Insurance Corporation of Singapore) premium to get ECICS to issue buyer credit guarantees to the banks. By an arrangement with ECICS, called the Export Credit Reinsurance Scheme, the Ministry of Finance reinsured part of the risks borne by ECICS in insuring the two buyer credits and collected some premiums from ECICS. When the two buyer credits for the two oil rigs went into default, ECICS paid the banks its liability under the two buyer credit guarantees and the Ministry of Finance paid ECICS a share of the liability under the Export Credit Reinsurance Scheme. This is a technical explanation for the two loans but I think some background information may be useful for Members. In 1980 Government entered into an arrangement to refinance or reinsure insurance risks undertaken by ECICS which is an export credit insurance company. This reinsurance procedure was necessary in order to finance the export of large capital goods from Singapore, primarily oil rigs and oil service-related equipment which were rather expensive. At that time Singapore, in fact, had developed into the second largest rig exporter in the world. And its rig exports were competing with rigs manufactured worldwide.”
“This will also enable the Chief Assessor to deem a change in the gross receipts of the business as evidence that the existing annual value is no longer accurate. This clause is a consequence of clause 2. I now move to the two other amendments aimed at the improvement of property tax administration and procedures. The amendment to section 20 will enlarge the composition of the Valuation Review Board from six to nine members and a Chairman. Since 1960, the Board has six members and a Chairman. With the great increase in the number of properties assessed since 1960, it is necessary to enlarge the Board to nine members and a Chairman so that appeals may be heard more expeditiously. The amendment to section 46 extends the prohibition on unauthorized allotment or fixing of house numbers. This is because the existing law does not cover individual units in a shopping complex or condominium. Sir, I beg to move. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee. [Mr Deputy Speaker in the Chair] Clause 1 -”
“The amendment in clause 2 thus serves principally to empower the Chief Assessor to assess the annual value of specified categories of properties with reference to gross receipts under this new proviso (g) to the "annual value" definition in section 2. Mr Deputy Speaker, Sir, I have also announced in the 1986 Budget Statement that from 1st July 1986, vacant lands under private development shall be exempt from property tax. Under current law, exemptions may be given to houses of worship, public schools, charitable institutions and certain social institutions. Tax may also be remitted on grounds of poverty, equity or justice. The amendment introduced in clause 3 will allow the Minister for Finance to make orders granting tax exemptions, remission or concessions for certain categories of properties such as vacant lands under private development. Property tax exemptions or remissions will then be used as fiscal tools to assist any sector of the economy. Clause 3 will also be used to grant concessions for owners who carry out large scale renovations to their properties. It is hoped that such major activities will assist the construction industry. Clause 4 introduces a new section 6A which will empower the Minister for Finance by order to require the annual value of properties specified in the order to be valued on the basis of gross receipts. To boost the tourist industry, approved tourist projects will be assessed by this method. The Minister may also order how the annual value is to be computed. This clause is connected to clause 2 above. The amendment in clause 5 is to empower the Chief Assessor to raise or lower the annual value when the gross receipts rise or fall.”
“Mr Deputy Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Property Tax (Amendment) Bill, 1986, gives legislative effect to two property tax changes announced in the 1986 Budget Statement. The two changes involve the property tax assessment on hotel rooms, restaurants and function rooms to be based on gross receipts and the waiver of property tax for lands under development. Opportunity is also taken to include two other amendments, introduced under clauses 6 and 7, to improve property tax administration and procedures. Hotel owners had requested for property tax assessments to reflect more clearly and quickly the gross receipts and occupancy rate of each hotel. Hotel assessments have hitherto been determined after periodic study of the hotel industry-wide indices. The annual value of each hotel is then assessed adjusting for differences in location, class and attractiveness. The criticism is that the time taken to gather data, study and compile the averages and then adjust for the individual differences of each hotel takes too long. It is proposed to assess the annual value of a hotel at a percentage of the annual gross receipts. The annual value and therefore the tax payable will then be responding very quickly to the business pulse of each hotel. The gross receipt instead of the net receipt is chosen because property tax is a tax on property and not a tax on net profits. Even if a hotel is making a loss it still has to pay property tax to contribute towards the public services and public goods it consumes.”
“Mr Deputy Speaker, Sir, as I have explained to the House previously, the Government decided to phase out the multi-revenue collection centres because cash payments and cash collections are by and large unproductive. Therefore, the Government would like to encourage cashless payments so that the public need not waste time queuing up to pay bills. The Government was aware that the decision might cause some inconvenience to the public. Hence, alternative cashless means of payment have been provided and actively promoted. These include GIRO, Interbank GIRO, telephone banking, Electronic Funds Transfer at Point of Sale and payment through ATMs. Publicity campaigns were also conducted in 1985 through exhibitions, mass media and advertisements to educate the public on the use of these alternative means of payment. The closing of the multi-revenue collection centres was done in three phases, beginning in February 1986 when five were closed. Another seven ceased operation in July 1986 and, finally, the remaining seven were closed in January 1987. Overall, I am satisfied with the measures taken to minimize inconvenience to the public arising from the closure of the multi-revenue collection centres. To re- introduce this service in new towns would be a regressive step and I do not propose to do so.”
“Sir, I beg to move, "That the new clause be read a Second time." Sir, at present, individual taxpayers are allowed an annual tax deduction of up to $2,000 on certain educational expenses. This relief was introduced in the 1985 Budget Statement and was intended for resident individual taxpayers only. The amendment to section 40(1) puts beyond any doubt that non-resident individuals are not entitled to claim the deduction. Question put, and agreed to. Clause read a Second time and added to the Bill.”
“Sir, I beg to move, "That the new clause be read a Second time." Sir, this amendment is consequential to the legislation which effects the tax incen- tive for operational headquarters in clause 11 of the Bill. The amendment to section 13B will ensure that dividends declared by the approved headquarters company out of income which has been taxed at the 10% concessionary rate will not suffer further tax in the hands of its shareholders. It will enable the benefit of the tax concession granted to the approved headquarters company to be passed on in full to the shareholders, as is generally the case in our incentive schemes. Question put, and agreed to. Clause read a Second time and added to the Bill.”
“Sir, I beg to move that Clause 4 be amended as follows: In page 2, to leave out line 20 to line 5 in page 3, and insert - (a) by deleting the word "and" at the end of sub-paragraph (i)(F) of the proviso; (b) by deleting the words "shall not exceed 25%," in sub-paragraph (i)(G) of the proviso and substituting the words "and before 1st April 1986 shall not exceed 25%;"; and (c) by inserting, immediately after sub-paragraph (i)(G) of the proviso, the following sub-paragraph: "(H) commencing on or after 1st April 1986 shall not exceed 10%,". Sir, the purpose of this amendment is to reflect more accurately the intention to reduce the tax deductibility of employers' CPF contributions from 25% to 10%, with no change to the existing treatment at the moment. Amendment agreed to. Clause 4, as amended, ordered to stand part of the Bill. Clauses 5 to 17 inclusive ordered to stand part of the Bill. New Clause (A) - "Amendment of Section 13B of the principal Act is section 13B. amended by deleting the words "or 43D" in subsections (1), (2), and (8)(a) and substituting in each case the words ", 43D or 43E".". - [Dr Richard Hu Tsu Tau]. Brought up, and read the First time.”
“I would like to point out for the Member for Whampoa's information that incentives to encourage development of the fund management already apply in the case of trading in foreign shares and securities where trading income is subject to nil tax. What we want to avoid is to extend the same privilege to dealings in domestic stocks and shares by companies which deal exclusively in this class of business. The Income Tax Department is very generous in its treatment of transactions by individuals like yourself or other members of this House who buy shares on the stock market and make capital gains. In fact, I doubt whether any individuals gains from stock trading have ever been taxed as ordinary income. It is only unwilling to extend the same privilege to companies whose sole business is trading in stocks and shares because stocks and shares then becomes a commodity in which it deals. And we see no difference between dealing in rubber or tin and dealing in securities. Question put, and agreed to. Bill accordingly read a Second time and committed to a Committee of the whole House. The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau]. Bill considered in Committee. [Mr Speaker in the Chair] Clauses 1 to 3 inclusive ordered to stand part of the Bill. Clause 4 -”
“On the third question of donations to the Museum and the safeguards which might be necessary to ensure that generous or wealthy donors do not use this as a means of avoiding tax, I can assure the Member that the Revenue Department who oversees the assessment of these gifts, in consultation with the income tax people, would exercise extreme caution in valuations. Their record on tax matters would justify such confidence and indeed I do not expect there will be large numbers of fake antiquities presented for donation purposes. We are conscious of the need to exercise caution.”
“Mr Speaker, Sir, on the first point raised by the Member for Whampoa on the possibility of reviewing the corporate tax rate, I would like to point out that the effective rate does not apply until the Year of Assessment 1987. We are, of course, always reviewing our corporate tax rate to ensure that we remain competitive and we will continue to do so. As the Member quite rightly pointed out, I am unable to give him a specific response at this time. As to the second question on capital gains versus trading income, this is a problem which has been raised for many, many years. I think it will have to remain an issue which has to be decided on a case-by-case basis. It will be nearly impossible to lay down simple and clear guidelines. I recognize that some of the complaints are from fund managers who would prefer a simple system. Unfortunately, this is not easy and I do not think any tax authority in the world has, in fact, arrived at such a simple solution. In principle, it is difficult to grant non-taxable capital gains for a company which is operating a fund or a business which deals in the transaction of securities. The fund manager obviously would like to treat all transactions of this nature as capital gains and therefore not subject to tax. If the Inland Revenue Department, ie, the income tax people, agree to such a proposal, then we will be treating this class of business differently from other businesses which pay normal corporate tax. Why should a company dealing specifically in securities be granted zero tax or concessional tax while the same privilege is not granted to, say, a manufacturing company? The question of equity arises and that is why it is not feasible to lay down guidelines which tend to favour this sort of operation.”
“Presently, only cash donations to the National Museum are deductible against the donor's assessable income for tax purposes. In order to encourage private collectors to contribute art pieces and artifacts of historical and cultural value, I have decided that gifts-in-kind to the National Museum should also qualify for income tax deduction. Clause 6 amends section 37(2) of the Act to effect this from Year of Assessment 1987 onwards. Earlier this year, it was announced that voluntary contributions to the CPF by self-employed individuals are to be tax deductible, subject to a maximum of 10% of the individual's assessable income, or $7,200, whichever is less. Clause 7 of the Bill provides for this. It also imposes certain conditions limiting the maximum amount of deduction, in the event that the self -employed individual also makes compulsory CPF contributions, and payments for life insurance premiums. This applies to contributions made on or after 1st August 1986 only. Employers' CPF contributions are presently tax deductible. As the rate of employers' statutory CPF contributions was reduced from 25% to 10% with effect from 1st April 1986, an amendment is required to section 14(1)(e) of the Income Tax Act, so as to limit the tax deductibility of employers' contributions to 10% only. Clause 4 of the Bill provides for this. Clause 2 is a technical amendment to bring up to date the definition of the term "prescribed" in section 2 of the Act. This will reflect the current practice by which the Minister can prescribe rules or regulations under various sections of the Income Tax Act, and is not confined to any one section. Sir, I beg to move. Question proposed. 12.08 pm”
“Clause 9 amends section 43 of the Act to reduce the non -resident's tax rate whilst clause 13 reduces the withholding tax rates in section 45. Under our tax regime, the rate of tax on the trustees of a trust and the executors of an estate is essentially set by the rate of tax on companies. Thus, with the reduction in the company tax rate, the rate of tax on trustees and executors is similarly reduced from 40% to 33% from Year of Assessment 1987 onwards. The legislation is amended by clause 9 of the Bill. At present, the maximum tax credit given to a resident taxpayer under double taxation arrangements is 40% of his foreign assessable income, ie, the maximum Singapore tax payable on such income. With the reduction in income tax rates, it is now necessary to limit this maximum credit to 33%. Clause 15 amends section 50(3) for the new limitation to take effect from Year of Assessment 1987. The tax incentive for operational headquarters was announced in June this year to encourage companies to use Singapore as a regional base. The incentive essentially consists of two parts. One, a 10% concessionary tax rate on income derived from the provision of headquarter type services, such as management, technical or other supporting services, to related companies outside Singapore; and the other, an effective exemption for foreign dividend income. Clause 11 inserts a new section 43E to apply the 10% concessionary tax to prescribed income of the approved headquarters company. No new legislation is required for the second part of the incentive as the existing legislation, section 13(7) of the Act, already enables the Minister to grant the exemption on foreign income on a case-by-case basis.”
“Clause 10 of the Bill amends section 43A to extend the application of the 10% concessionary tax under that section to any approved fund manager. I now move to the other amendments. In line with the company and individual tax reductions, the rate of tax withheld on dividends declared by a resident company is reduced from 40% to 33%, with effect from 1st January 1986. As companies could only be informed of this after the announcement of the company tax reduction, an adjustment is necessary for those dividends declared before the Budget Statement and in the early part of 1986, on which 40% tax had been withheld. In making the adjustment, the net dividend received by the shareholder is regarded for tax computation purposes as carrying a credit of 33% only. The difference between tax deducted computed in this manner (ie at 33%) and that on the original gross dividends (ie at 40%) is credited to the dividend franking credit account of the company paying the dividend. Clauses 12 and 14 of the Bill provide for this. A transitional measure is also needed to ensure that dividends which are declared before 1st January 1986 but, under present arrangements, are assessed in the shareholders' hands in 1987, are instead assessed in Year of Assessment 1986. Clause 5 inserts a new subsection (2A) to section 35 of the Act to provide for this. Following the reduction in the maximum individual and company tax rates from 40% to 33%, the tax rate for non-resident taxpayers will be similarly reduced with effect from Year of Assessment 1987. In line with this, the rate of tax withheld on certain payments, such as interest, royalties and rents, to non-residents is accordingly reduced to 33%. This reduction only applies to payments of income which become assessable in 1987.”
“Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." The Income Tax (Amendment) Bill, 1986, gives legislative effect to three income tax concessions announced in the 1986 Budget Statement. Opportunity is also taken to include other amendments, necessitated by the cut in income tax rates, as well as to extend certain provisions of the Act. An across-the-board once-off rebate of 25% to resident individual taxpayers for the Year of Assessment 1986 only was announced in the 1986 Budget Statement. Clause 17 of the Bill provides for this. Clauses 8 and 16 further amend the legislation to effect the reduction in individual tax rates, and the increase in the existing rebate from 10% to 15% on the tax payable on the first $10,000 of chargeable income. This will take effect from the Year of Assessment 1987. The second Budget concession on the reduction in the company tax rate from 40% to 33% with effect from the Year of Assessment 1987, is made by the amendment to section 43 in clause 9. The third concession in the 1986 Budget Statement was an extension of the existing tax incentive for fund management. The original scheme, which took effect in 1983, confers exemption from Singapore tax on investment gains from funds of non-resident investors managed by approved ACU fund managers in offshore assets. In addition, fund manager's fees are taxed at 10%. The concession extends the scheme to include fund managers who do not have ACU licences but are approved for the scheme by the Monetary Authority, and to investments in local stocks and shares. Clause 3 introduces a new section 13C which empowers the Minister to prescribe the income of the non-resident which will be exempt from tax under the scheme.”
“Ways will have to be found to facilitate the payment. In view of these differences, the present CPF system cannot be applied in toto but must be adapted for the self-employed. My Ministry is carefully examining various approaches before we proceed with our plan to include the self-employed in the CPF scheme.”